The European Union faces a full-scale funding crisis after talks in Brussels
aimed at settling next year’s budget ended in acrimony and walkouts.

MEPs led a walk-out of three-way talks in which the European Commission and European Parliament were attempting to secure billions of pounds in extra funding for this year and next year from national governments, claiming there was a cash shortfall.

MEPs quit the talks at the attempt to secure a total of £13.8 billion in spending this year and next, a move fiercely opposed by the British Government.

Ministers have formed an alliance with other EU nations including Germany, the Netherlands and France to block the demands.

The failure of the talks casts a fresh doubt on whether a major summit to agree to the EU’s future funding from 2014 to 2020, scheduled for later this month, can go ahead.

There had already been claims that the Brussels gathering would be cancelled because David Cameron was refusing to drop his threat of using Britain’s veto to block any future increase above the level of inflation for the seven-year period.

Greg Clark, the Financial Secretary to the Treasury, said it was “frankly breathtaking” that the Commission was asking member states to stump up more cash at a time when national governments were reining in spending and the EU’s economy was likely to contract by 0.3 per cent by the end of next year.

“Ordinary working people, whether in the UK or elsewhere, cannot be asked to pay more to Europe when they are enduring cuts at home,” Mr Clark added.

Friday night’s deadlock – at the end of eight hours of talks – was over demands by the European Commission for a £7.3 billion spending increase by the end of this year to meet an alleged funding shortfall, figures that are disputed by Britain and other governments.

At the same time, the European Parliament wants to reinstate over £6.5 billion in funding that had been cut by governments from next year’s budget to reflect national austerity programmes.

The two demands, for this year and next, would increase Britain’s EU contributions by £1.6 billion at a time of deep cuts to public services domestically.

Treasury sources said MEPs led the walkout because they had “felt let down” by the Commission’s tactics. Sources also hailed the “very strong like-minded group” of national governments which they said had held firm against extra spending – including Britain, the Netherlands, Germany, France, Sweden and Finland.

Mr Clark added: “Unbelievably this proposed amending budget is much more even than the budget increase originally proposed by the Commission last year. What is the point of having a negotiation if an amending budget makes it irrelevant?

“The UK and a number of other countries were very clear from the outset that the Commission and the European Parliament should not be asking taxpayers for billions of extra euros when the spending in member states is being reduced.

“The negotiations broke down when the Commission’s figures, on which the talks depended, turned out to be “not solid” in the words of the parliament’s chief negotiator.

“When the negotiations resume we will continue to work with like-minded countries to press for budget discipline and fairness for taxpayers in the UK and Europe.“

Alain Lamassoure, the French MEP who heads the European Parliament’s budget committee, said that governments “were unable to negotiate so the negotiations were suspended”.

“The European Commission will now have to present a new proposal to enable talks to resume,” he said.

Jeroen Dijsselbloem, the new Dutch finance minister, said he did not believe the Commission’s claim that the EU would be unable to pay its bills without the extra money.

“I’d question that very much. The Commission has to re-prioritise, that’s just the way it is. Budgetary discipline is not just for the member states,” he added.

The negotiations for 2012 and 2013, which no country can veto and on which can be taken according to qualified majority voting, are likely to begin again on Tuesday.

At the same time, the prospect of a successful deal on the 2014-20 spending package looks remote. Reports this weekend from Italy suggested the summit, scheduled for 22-23 November, might not go ahead because of Mr Cameron’s refusal to back away from his threat to veto any deal which would see spending rise by more than inflation.

A deal on the seven-year package can be vetoed by the individual countries’ heads of governments, unlike Friday night’s negotiations for 2012 and 2013 which involved finance ministers. The Prime Minister first made his veto threat, to which he says the Liberal Democrats are fully signed up, in an interview with this newspaper before last month’s Conservative Party conference.

Last month a vote in the Commons saw 51 Tory rebels join Labour and defeat the government with a demand that the 2014-20 budget be reduced in real terms – an even tougher stance than Britain’s official position and one which has no chance of succeeding.

The vote was not binding on the Government but was seen as embarrassing for Mr Cameron because of the high number of Tory rebels indicated once again that he is out of step with large sections of his party on Europe.